Glencore may move on if Xstrata bid blocked -UPDATE

Falling commodity prices took their toll on Glencore's bottom line in the first half of 2012, as the ongoing Eurozone crisis dampened risk appetite across the globe.

The commodities producer and marketer said that prices in many key own produced commodities fell between 14% and 28% year-on-year (y/y) in the six months to June 30th. While it admitted that the first half "contrasted markedly" with the same period last year, earnings figures were still "respectable".

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) slipped 17% y/y from $3,845m to $3,199m. Nevertheless, the group said that it was 22% higher than the second half of 2011 and the annualised first half of 2012 is tracking closely to the full-year performance that it achieved in 2011.

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Net income before significant items fell by 2% from $2,439m to $1,809m, but that was still better than analysts' forecasts of $1.6bn.

"Financial markets were relatively optimistic entering 2012, following the sovereign debt-related challenges experienced during H22011. This optimism generally faded as the half progressed and, with it, expectations for economic growth and commodity prices. Concerns over how precisely the European situation would and could be resolved have continued to erode global risk appetite," said Chief Executive Officer Ivan Glasenberg.

Despite the drop in profits, group revenue gained 17% from $92,120m to $107,957m on the back of higher oil volumes handled and a higher oil price. While this improved the top line, higher oil prices and volumes saw the cost of goods sold jump by 18%.

The group raised its interim dividend by 8% to $5.4 per share.

With net debt increasing by 12% to $14,466m, the net debt-to-adjusted EBITDA ratio increased from 2.00x to 2.49x.

There was no mention of the rumours surrounding the risks to its proposed merger with miner Xstrata in the press release. Yesterday, it was reported that Qatar Holdings - a large Xstrata shareholder which is not happy with the original terms of the deal - had boosted its stake in the miner as it is looking to block the deal and demand a better offer than the current '2.8 Glencore shares for every Xstrata share'.

"QH believes that an exchange ratio of 3.25 new Glencore shares for every one existing Xstrata share would provide a more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic stand-alone value of Xstrata," the Middle Eastern group said back in June.

Glencore may move on

Speaking after the results announcement, however, Glencores chief executive is being cited by Bloomberg TV as saying that the company "will move on" if its bid for Xstrata is blocked, adding that the transaction could be revisited in 1 to 2 years time.